Abu Dhabi, UAESaturday 24 August 2019

Eurozone unemployment lowest since global financial crisis but clouds loom ahead

Not all is rosy as trade disputes and no-deal Brexit await on the eurozone horizon

Storm clouds may be gathering but central banks, such as the European Central Bank (pictured), are taking steps to avert any issues. Photo: Getty Images
Storm clouds may be gathering but central banks, such as the European Central Bank (pictured), are taking steps to avert any issues. Photo: Getty Images

Household incomes are on the up and unemployment across the Eurozone is at its lowest since 2008, according to latest figures.

The eurozone economy expanded in the first quarter of 2019 by 0.4%, compared to 0.2% in the second half of 2018.

But while the latest data paints a positive picture of growth, warning signals for the eurozone lay ahead.

Germany and Italy, the industrial hubs of the eurozone, will continue to suffer from the global manufacturing slowdown.

Germany in particular could be hit by an escalation of trade disputes, which could mean higher tariffs on EU cars, and a hard Brexit.

The eurozone economy's high integration in global value chains makes it vulnerable to the slowdown in global trade, said S&P Global.

Meanwhile, the weaker global economic backdrop is already weighing on eurozone inflation via import prices and inflation expectations dropped in June.

“Against this backdrop, we think the ECB has little choice but to loosen monetary policy further this year,” said S&P Global Ratings economist Marion Amiot.

“We expect it to adjust its forward guidance, reopening the door to a rate cut, by mid-2019. A downward bias would allow the ECB to cut rates as soon as September 2019, if the euro strengthens on looser policy by the US Federal Reserve System and market-based inflation expectations do not increase markedly from their current lows.”

S&P Global said it does not expect the European Central Bank to be able to raise rates again until at least the second quarter of 2021.

It warned that the chances of a disruptive no-deal Brexit is increasingly becoming “high and worsening”.

Updated: July 17, 2019 05:59 PM

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